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How Living Longer Will Impact Your Retirement

Maryalene LaPonsie

A 65-year-old can expect to live another 19 to 21 years, on average, according to the Social Security Administration. What's more, the government agency says a quarter of 65-year-olds will hit age 90, and one in 10 will live beyond age 95.

Those numbers show a significant improvement in life expectancy over time. In 1960, for instance, a 65-year-old man was only expected to live an average of 13 more years, while a 65-year-old woman had an average remaining life expectancy of 17 years.

[See: 10 Ways to Gradually Retire.]

Financial planners have taken note of the trend and adjusted their guidance and saving plan accordingly. "When we plan for clients nowadays, we take our time frame out longer to 95 or 100 [years old]," says Dave Totah, a certified financial planner with Exencial Wealth Advisors in Frisco, Texas.

Adjusting investment strategies is just one way in which longevity is changing the face of retirement. Living longer has also translated to seniors having more time to do the things they want and added opportunity for expensive health care expenses to emerge. However, to prepare for all the following ways in which a long life will impact retirement, workers need to start saving early.

A longer retirement means more time to fill. The prospect of a 20-year retirement has changed how some people approach their senior years. Rather than quit the workforce at age 65, many Americans continue to work either to supplement their retirement income or because they miss the routine of the workplace.

"They forget work was a place of purpose for them," says Ken Mahoney, president of Mahoney Asset Management in Chestnut Ridge, New York. He finds many of his clients "unretire" when they decide they enjoyed life more when they had a job.

The Bureau of Labor Statistics estimates growth in the senior workforce will outpace that of younger employees. While job growth in the labor market for 35- to 44-year-olds is expected to rise 1 percent annually from 2014-2024, according to the Bureau of Labor Statistics, it will rise 4.5 percent for 65- to 74-year-olds and 6.4 percent for those 75 and older.

While a longer retirement means more time for work and other pursuits, some planners advise against waiting too long to fulfill life goals. "I counsel people that while they are healthy and retired, that's time to start taking some of these trips that they [planned]," says Joe Roseman Jr., a managing partner with financial firm OWRS in Charlotte, North Carolina. Those who wait too long could find they run out of cash or good health to make those dreams a reality.

Health care costs may eat up funds. When it comes to the price of health care in retirement, the numbers can be staggering. Fidelity Investments estimates a 65-year-old couple retiring in 2018 will need $280,000 to cover health and medical care costs in retirement. Ongoing long-term care is among the most significant health care costs faced by seniors today. While many older Americans rely on Medicare for their health care coverage, Medicare will not cover out-of-pocket costs such as nursing home, assisted living or home health care that is intended to help with activities of daily living such as eating, bathing and dressing. State Medicaid programs may pay for this type of care but only after seniors have depleted almost all their assets and savings.

[See: 10 Money Tips for Family Caregivers.]

That leaves retirees and their families to pay these extra costs unless they have a long-term care insurance policy. The Administration on Aging within the U.S. Department of Health and Human Services says the 2016 national average for long-term care costs run from $20 per hour for home health services to $7,698 a month for a private nursing home room.

Julie Prince, a wealth management advisor with financial firm Northwestern Mutual, says a retiree needs to worry about paying for more than just their own health care costs, too. "Caregiving for elderly relatives or friends is a big consideration for current retirees and those preparing to retire," she says.

A survey conducted by Northwestern Mutual found 34 percent of current caregivers report spending anywhere from 21 to 100 percent of their monthly budget on caregiving-related expenses.

Standard investment strategies may not work. Long retirements can also mean people have to rethink how they withdraw money from retirement funds. In the past, pulling out 4 percent of a fund's principal each year was considered safe. However, that rule of thumb may not work anymore. "The old 4 percent rule is based on 30 years [of retirement]," Roseman says. "If people are living 35 or 40 [years], they can run into a problem."

Plus, moving investment money upon retirement into conservative funds, such as those based on bonds or cash, may no longer make sense. "Be careful," Mahoney says. "Money in cash [investments] isn't keeping up with inflation."

Traditionally, these bond and cash investments were used to ensure retirees wouldn't risk losing money when they needed it. However, with a 30-year retirement not out of the question, older Americans may need to keep a portion of their money in more aggressive growth funds to ensure gains on their investments are outpacing the rate of inflation.

[See: How to Save $1 Million by Retirement.]

While a longer retirement provides more time to enjoy hobbies and spend time with family and friends, the downside is you may need more money to do everything you want. "Simply put, longer lifespans have made it even more important to begin retirement planning at an early age," Prince says.

By doing so and preparing for potential health care costs, a long retirement can be more good news than bad news for you -- and your loved ones.

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